The Magazine

Oil's Not Well in Iraq

But it's not too late to fix the problem.

Feb 19, 2007, Vol. 12, No. 22 • By MICHAEL MAKOVSKY
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There needs to be, however, not one oil law but a multilaw hydrocarbon regime to address not only revenue-sharing but also foreign investment, taxation, contracting, the establishment of a decision-making federal petroleum committee, and the reestablishment of Iraqi national oil companies, among other vital matters. Revenue-sharing might be part of the horse-trading, but its resolution should not be a precondition for addressing every other issue. For any such agreements to become law under Iraq's constitution, a draft law must pass through the Council of Ministers and then Parliament. If any constitutional amendments are required to accommodate any new oil laws, the process will go on even longer.

While this whole process plays out, the Iraqi oil sector will continue to deteriorate, to the short- and long-term detriment of Iraq's ability to become self-sufficient. Iraqi oil stagnation or decline will also contribute a bullish element to the global oil market, which is certainly not constructive to U.S. economic or strategic interests.

Thus, the U.S. government should be looking beyond the politics of Iraqi oil to help Iraq pursue the economic advantages of developing its oil sector. Here are some practical ways the United States can help.

* First, Washington should work to bolster necessary Iraqi and U.S. technical expertise in Baghdad. The number of excellent Iraqi oil officials, many of whom trained abroad, is quickly dwindling because of age, security, and ministry politicization. The United States needs to encourage the Ministry of Oil to hire outside experts in contracting, project management, security, and other important areas, and integrate them into its bureaucracy just as Russian, Saudi, and other national oil companies have hired foreign experts. Likewise, the U.S. State Department must rely less on diplomats and more on private sector experts to run and reform its reconstruction operations. Broadly, State should withdraw generalist civilian ministerial advisers in favor of targeted industry experts, to whom the Iraqis will be more likely to listen.

* Second, Washington should hike its funding for training Iraqi oil officials beyond the current $2.5 million managed by the Trade and Development Agency, and conduct extensive training in the United States as some senior Iraqi oil officials have requested. Most training is conducted elsewhere in the Mideast because of cost and U.S. visa difficulties. But it would better serve U.S. interests to train future Iraqi oil leaders here, where they can improve their English, study our ways, and develop relationships with a range of U.S. oil executives and government officials. Russia, Britain, China, and others have hosted hundreds of Iraqi oil officials for extended training in their home countries.

* Third, the United States should facilitate the expenditure of additional funds to increase Iraqi oil production, export, and storage capacity, particularly in the south. Some projects, such as oil well refurbishments, can quickly bring superb returns. Of course, the Iraqis must spend some of their own money, but the United States must not wait for that to happen. Whatever the Iraqis do not spend now, they will certainly need later anyway.

* Fourth, the United States ought to dedicate more resources to infrastructure security in the south, which suffers fewer attacks than the center or north but is far more important to the oil industry. While the United States can help with money and personnel, Iraq must take overall responsibility for infrastructure security and bring in private contractors to help with training and guarding key facilities--the cost of which will be offset by the extra oil revenue generated.

The Iraqis must take the lead in developing and securing their highly promising oil industry. But the United States should provide targeted guidance and assistance, so that Iraq can generate greater revenue in the near and long term. That remains an essential condition for reviving and stabilizing Iraq and finally reducing its dependency on the U.S. military and taxpayer.

Michael Makovsky was a special assistant for Iraqi oil policy in the office of the secretary of defense, 2002-2006.